Switzerland is struggling to hold on to its fabled banking secrecy after embattled giant UBS agreed to pay a hefty fine and hand over client data to the US as part of a massive settlement of tax fraud charges.
Switzerland's image as a tax haven has been a disadvantage in the financial crisis
Swiss bank UBS on Thursday, Feb 19, agreed to pay Washington $780 million (614 million euros) and hand over customer data in a landmark case that has raised questions about the future of the European nation's treasured banking secrecy laws.
The United States filed suit on Thursday for the identities of some 52,000 US clients who could be hiding up to $14.8 billion in UBS accounts, the US Justice Department said.
Swiss President and Finance Minister Hans-Rudolf Merz defended the settlement, saying the principles of secrecy remained in place.
He said UBS had had no choice but to settle the case to avoid criminal charges that could have threatened its existence and undermined Switzerland's economy.
"Bank secrecy will stay," Merz said at a news conference. "It became evident that if the American authorities would bring UBS to an indictment ... the whole threat would have been falling also on our economy."
Some experts say the settlement, a new step in the growing global fight against tax evasion, opens cracks in the country's bank secrecy laws.
Tax evasion not a crime in Switzerland
The tradition of Swiss banking secrecy dates back to legislation from 1934. It placed unusually tight restrictions on the amount of information banks are allowed to share with third parties, including foreign governments seeking out tax cheats.
UBS has announced job cuts and received a bailout from the Swiss government
Switzerland does not consider tax evasion a crime, and Swiss law prohibits disclosure of client data or names unless the country's authorities believe the client has committed a serious crime such as money laundering or tax fraud.
"Client confidentiality, to which UBS remains committed, was never designed to protect fraudulent acts," Peter Kurer, the bank's chairman, said in a statement.
Serge Steiner, a spokesman for UBS, said Switzerland's largest bank would comply fully with the terms of the deal reached with the US Justice Department.
Settlement raises pressure on Switzerland
The tax fraud case comes at a time when the global financial crisis raises pressure on tax havens like Switzerland to stop helping the wealthy shelter their money from the tax office as governments seek funds to pay for more spending.
US President Barack Obama has said he intends to get tough on tax fraud. In 2007, he helped introduce a Senate bill to crack down on offshore tax havens.
Germany last year called for Switzerland to be put on a tax haven blacklist and launched a probe last year into its nationals stashing assets in Liechtenstein.
France has also called for the eradication of tax havens.
The settlement comes a week after both UBS and Credit Suisse, the second-largest Swiss bank, reported huge fourth- quarter losses. UBS has announced job cuts and has accepted a bailout from the Swiss government.
The bank is expected to be able to retain its US banking licenses as part of the deal and keep its top executive out of courts, Swiss media said.